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GCC Indirect Tax Digest

October 28, 2021

 

KSA developments
 

VAT time of supply rules updated in KSA
 

The Board of the Zakat, Tax, and Customs Authority (ZATCA) in the Kingdom of Saudi Arabia (KSA) has approved an amendment made to the local Value Added Tax (VAT) Implementing Regulations, aimed at easing the cashflow impact for those making taxable supplies in the Kingdom directly to government bodies, and also confirming the authority’s view on the proper time of supply where goods are paid for in instalments.

There will be consequential changes to the format of the local VAT returns when the changes take effect from 1 November 2021. The KSA VAT return form will have a new field added for standard-rated supplies to government entities.

Suppliers providing services to government bodies should review their current project portfolio urgently in order to identify which supplies will be impacted, and to consider any process or system changes to ensure they can take advantage of the legislative amendment.
 

Less than 40 days to e-invoicing implementation
 

The go-live date for the first phase is 4 December 2021, and the go-live date for the second phase is 1 January 2023. The latter will be implemented in a phased roll-out, and ZATCA will inform the targeted/selected taxpayers six months before integrating with the Authority’s system.

The first phase of electronic invoicing (e-invoicing) is expected to be implemented in KSA by the end of this year.

As previously announced, there will be two major phases: (1) the Generation phase and (2) the Integration phase.

Businesses in KSA should take action as a matter of priority to ensure that they are in compliance with the e-invoicing requirements by the applicable deadlines. There are now less than 40 days remaining until the go-live date for the first phase, and as such, businesses should ensure that they are in a compliant position by the deadline to avoid penalties for non-compliance.

 

Oman developments

OTA publishes VAT guide on Special Zones
 

The Oman Tax Authority (OTA) has issued a guide on VAT and Special Zones, to set out principles on the applicability of transaction taxes on transactions related to so-called Special Zones. In essence, simplifying rules apply on supplies of goods and/or services from, to or within these Special Zones under the Oman VAT Law and Executive Regulations. Special Zones are part of the territory of the Sultanate of Oman. 

Special Zones are defined to include Free Zones, Economic Zones and other Zones that may be designated as “Special Zones” from time to time. Four Special Zones have been subject to clarifying notes from the OTA and Zone authorities so far – Al Mazunah Free Zone; Sohar Free Zone; Salalah Free Zone; and Duqm Special Economic Zone.

In the newly released VAT Guide, the OTA has indicated the following treatments to be adopted by businesses operating within the Special Zones or by businesses transacting from the Oman mainland (or outside Oman) with businesses in the Special Zones:

Sr.
 No.

 Nature
 of transaction

Supply of goods

Supply of services

1

Supply of goods and/or services; or movement of goods - from the Oman mainland to a Special Zone or within the Special Zone

  • Taxable at zero percent (0%) and meeting of the conditions mentioned in the Executive Regulations 

Note: the customer located in the Special Zone must sign a statement, which confirms it is licensed to operate in the Special Zone and that the goods are for the purpose of carrying out that licensed activity in the Special Zone and provide this to the Supplier. The Supplier shall not apply the zero rate if he does not hold such a statement

  • Taxable at zero percent (0%) and meeting conditions
    mentioned in the VAT Executive Regulations
  • If VAT is charged and the recipient is VAT registered, VAT paid can be deducted (as input tax) according
    to normal deduction rules

2

Supply of goods and/or services; or movement of goods - from a Special Zone to Oman
mainland

  • To be considered as import and import VAT to be payable by the importer while moving goods for free circulation within the Oman mainland
  • The import VAT shall be due on the date of release of goods from the Special Zone

Taxable at standard rate of 5%, unless such services are exempted or zero-rated as per the VAT Law and Executive Regulations

3

Import of goods and/or services - from outside Oman into a Special Zone

  • To be considered as import; however, import VAT would be suspended on entry of goods into the Special Zone until release or at any other time when the suspension period ends under Common Customs Law

Note: The importer would have to submit a guarantee to the Directorate General of Customs equal to the value of the VAT due and such guarantee must be valid throughout the period of tax suspension. This guarantee can be in form of a (i) bank guarantee, or (ii) financial guarantee, or (iii) written guarantee, or (iv) any other type determined by the Directorate General of Customs

  • Taxable at zero percent (0%), subject to fulfillment of the conditions in the VAT Executive Regulations
  • In other cases, taxable at the standard rate of 5%, unless such services are exempted as per the VAT Law and Regulations. The recipient of services to account for VAT under Reverse Charge Mechanism

4

Supply of goods
and/or services; or movement of goods - from a Special Zone to outside Oman

  • To be treated similar to export of goods, subject to the conditions laid out in the VAT Executive Regulations

Note: we understand that
transactions with businesses in other Gulf Co-operation Council or GCC member states are treated the same as those in non-GCC countries 

  • Taxable
    at zero percent (0%) rate, subject to fulfilment of the conditions of export of services mentioned in the VAT Law and the Executive Regulations

5

Transfer of goods or
supply of services from the Special Zone to one of the Customs Duty Suspension
Statuses

  • To be considered as zero-rated supplies as long as the taxable person who transfers the goods must maintain documentary evidence, proving that the transfer of goods is done after obtaining approval by the Operating and Regulating Authority of the Special Zone or the Directorate General of Customs (as the case may be)
  • Taxable at zero percent (0%) rate, subject to meeting conditions for zero-rating per the VAT Law and Regulations

6

Supply of goods
and/or services from the Customs Duty Suspension Statuses to a Special Zone

  • To be considered as zero-rated supplies if meeting the conditions stipulated in the VAT Executive Regulations 
  • Taxable at zero percent (0%) rate subject to the conditions in the VAT Law and the Executive Regulations

 

The details of your specific transactions matter – in our experience, determining the right VAT treatment for transactions involving Special Zones is a complex area. When in doubt please consult – we have often seen businesses make mistakes that start as minor but then cause major headaches. 

This digest is for information purposes only and should not be construed as advice. It does not necessarily cover every aspect of the topics with which it deals. You should not act upon the contents of this alert without receiving formal advice on your particular circumstances.

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